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Paper long abstract

This study investigates the drivers of environmental sustainability in G-20 economies by explicitly accounting for their heterogeneous development levels and energy structures. Departing from the dominant strand of literature that assumes cross-country homogeneity and relies on aggregated energy indicators, this research advances the debate by jointly examining financial development, green innovation, and disaggregated energy consumption within a unified empirical framework that accounts for heterogeneity, non-stationarity, non-linearity, and cross-sectional dependence. Using panel data for G-20 countries, the analysis allows for heterogeneous effects across advanced and emerging economies, thereby capturing structural and institutional differences that shape environmental outcomes. The results reveal that financial development alone does not guarantee environmental improvement; rather, its sustainability impact critically depends on its ability to foster green innovation. Green innovation is shown to enhance the environmental gains from renewable energy consumption while partially offsetting the environmental costs associated with non-renewable energy use. Moreover, renewable and non-renewable energy consumption exert asymmetric and development-dependent effects on environmental sustainability, highlighting the empirical limitations of aggregated energy measures. By emphasizing heterogeneity and energy composition, this study provides new insights into the finance–innovation–energy nexus and offers differentiated policy implications for achieving environmental sustainability in both developed and developing G-20 economies.